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We said it was the Federal Housing Administration, which sells lenders a 100% guarantee against defaults on home mortgages typically for lower income people. FHA has seen defaults skyrocket on these loans.

But the Federal Housing Administration fought us vigorously on our story. So did liberal economic research groups.

Turns out they were wrong.

As the FHA is now set to soon release its annual report, the University of Pennsylvania's Wharton School estimates that the FHA faces around $50 billion in losses in coming years.

Last year, economists from New York University and the New York Federal Reserve also warned the government agency would need a taxpayer bailout.

Back in 2009, we found FHA only had a “teacup” of money against a flood of potentially bad loans out of the seven million it insures.

Today it only has $31.7 billion in reserves, out of which only $2.8 billion is set aside to back its $1 trillion book of business.

Thanks to government housing programs like the FHA, together with Fannie, Freddie, and Ginnie Mae, the U.S. taxpayer now insures about nine out of every 10 mortgages.

We’ve been telling you also that Fannie, Freddie and the FHA have dangerously mismanaged their capital cushions to support their business. That’s scary, because their balance sheets are about the size of the economies of France and India combined.

And their balance sheets continue to teeter at a time when the Congress and the Administration have leaned on them to do more to help bail out homeowners or to help them buy homes. We warned two years ago this could only result in “potentially catastrophic consequences for the U.S. taxpayer.” Fannie and Freddie are in government conservatorship.

Even Fannie and Freddie have consistently put out warnings submarined in their filings with the Securities and Exchange Commission that they will continue to post losses due to the government’s housing bailouts. And even the Department of Housing and Urban Development’s Inspector General has issued withering reports on the FHA.

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– Benjamin Franklin

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